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Wed 22 May 2019 11:26 AM

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Abraaj collapse impacted larger deals in Middle East, says growth capital firm

Demise of Abraaj left 'big gap' in the region, but investors 'are not scared' of putting their money in the Middle East, says CedarBridge MD Imad Ghandour

Abraaj collapse impacted larger deals in Middle East, says growth capital firm
Once the Middle East and North Africa’s largest buyout fund, Abraaj collapsed last year in the world’s biggest private-equity insolvency case in the aftermath of a row with investors, including the Gates Foundation, over healthcare fund.

The collapse of Dubai-based private equity firm Abraaj has impacted larger investment deals in the Middle East, but has had little effect on smaller transactions, according to the co-founder and managing director of MENA investment management company CedarBridge Partners, which specialises in growth capital.

Once the Middle East and North Africa’s largest buyout fund, Abraaj collapsed last year in the world’s biggest private-equity insolvency case in the aftermath of a row with investors, including the Gates Foundation, over healthcare fund (now Evercare Healthcare Fund).

Speaking to Arabian Business, Imad Ghandour said investors in the region are not necessarily sceptical of private equity, and continue to put their money into smaller businesses.

“I don’t think [the collapse of Abraaj] affected [the region] in the obvious impact, where people are sceptical of private equity. I think people are still putting a lot of money in venture capital, which is pretty much asset management. So, that trust of giving your money to a certain person, I don’t think it has deteriorated as much as [what] you read [in the media] or you expect,” Ghandour said.

“There are few other areas it has impacted; number one in the Middle East in particular as Abraaj was a big player in Cairo and other parts of the region. The demise [of Abraaj] and the problems faced by other big funds concluded a debate which started a while back that big transactions are not really for the region.

"This is a region where the smaller transactions will do better, and where we don’t overpay for these big companies [but] try to invest in smaller companies at more reasonable valuations. This debate has been around for a few years,” Ghandour added.

Gap for global investors

Cedar Bridge, which recently acquired the UAE’s Eton Institute as well as Costa Coffee in Cyprus, has invested in businesses including grooming concepts JetSet, 1847 and NBar.

Ghandour said that while the Abraaj collapse has left a large gap in cities like Cairo, where the private equity giant was the biggest fund manager, it is slowly being filled by global investors.

“The other thing is with the demise of Abraaj, it left a big gap in the regional landscape, where Abraaj was biggest fund manager by far and had regional scope. When you go today to Cairo, where Abraaj was big player, nobody is playing; much smaller players are playing… [but] the gap might be filled by international funds and you see them trickling to the region,” he said.

He also stressed that investors “are not scared” of investing in the region as a result of Abraaj’s demise.

“Some people did obviously [lose money]. I can’t say nobody did, but from talking to people, I can’t say [Abraaj] is on the top of their head and that they’re scared of putting money with other people because there will be another Abraaj situation and they feel unprotected,” he said.

“I don’t think this is the issue. The issue is, is the guy in front of you still credible, [but] this is the same discussion you would have had 10 years ago - can I give this person in particular my money or not.

“If some people were unable to raise money, then they have to look internally in the mirror and see if they actually have been reporting correctly to their LPs (limited partners) and performing up to their expectations,” Ghandour added.

Abraaj arrests

Investors in Abraaj’s healthcare fund, which include the Overseas Private Investment Corp, IFC, CDC Group, Proparco, Philips and Medtronic, had alleged mismanagement of money in the fund and commissioned an audit to investigate the private equity firm.

In May, US private equity firm TPG acquired management of the healthcare fund and renamed it Evercare Healthcare Fund. It said the fund will continue its assignment of providing quality yet affordable healthcare across Africa and South Asia.

Abraaj founder Arif Naqvi, who was arrested in the UK in April, is currently awaiting potential extradition to the US, where he faces charges of defrauding investors. He has, however, maintained his innocence.

Mustafa Abdel-Wadood, former Abraaj Group managing partner, is also facing fraud charges in the United States, but was granted a $10 million bail bond by a New York judge last month.

Liquidators for Abraaj, which at some point managed almost $14 billion in assets, are attempting to sell some of the private equity funds managed by the firm.

Colony Capital Inc has agreed to buy Abraaj’s private equity business in Latin America, while Actis is attempting to buy the $1 billion Abraaj Private Equity Fund IV, but is yet to convince fund investors in the fund to opt for the deal.

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